KTK Ships Again, Four Times Bigger

KTEK Aerosystems (ASX: KTK) restarted deliveries to its biggest customer this morning, six months after the Iran war held them up, and it says it can now build 200 airframes a month.

We told readers in August to circle September. KTK had said in its June quarterly the parts would move again in September, and we wrote it was the date to watch.

We had the ASX platform open early this morning, and the announcement landed on the last day of September, right when KTK said it would.

What the $10 Million Bought

KTK raised $10 million at its May float to build more airframes, because its biggest customer wanted more than KTK could make. The money went on tooling to build more, and on setting up in the US.

The war shut KTK’s shipping route in March, so KTK took in just $273,000 from customers in the June quarter. The airframes it had already built sat in a warehouse in Europe.

KTK used the pause in shipping to build the new tooling and finish the quality checks the customer wants to see before it takes a batch. In August the Dutch government also approved a licence to ship KTK’s Netherlands-made parts to the US, where KTK assembles them at its Los Angeles site.

Last year KTK’s partner factories built about 50 airframes a month and the company turned over $5.3 million in revenue. Those factories can now build 200 a month, and at last year’s prices KTK puts a full month at $1.66 million, close to $20 million a year.

KTK is worth about $24 million at 17c. We think $24 million is cheap for a company whose factories can build $1.66 million of product a month, with customers already waiting for it.

The Customer Was Waiting the Whole Time

The manufactured batch goes to the drone maker KTK was supplying before March. In the June quarterly KTK said demand from it stayed strong and the backlog was still there.

KTK also supplies Elbit Systems and UVision, and the drones KTK makes parts for have won more than $2.5 billion in orders since 2023.

We sat down with chairman Howard Digby last week and asked him why drone makers stick with their suppliers. He told us it takes a supplier years to get in and a serious mistake to get thrown out, because KTK designs the part before it builds it, and once the part is in the drone the drone maker has to redesign the drone to change supplier.

KTK also signed a potentially new customer while its route was shut. Nine days ago one of Israel’s three big defence contractors placed a binding US$200,000 order with KTK to start designing a part, KTK puts the wider program at around US$5 million, and it delivers the first drawings around Christmas.

Los Angeles

The Pentagon prefers American-made parts and is asking for more than US$70 billion for drones and counter-drone systems next year, so with the Dutch licence in hand KTK can now pitch American drone makers with parts assembled in California.

Our Take

We picked KTK at 20c in May because its customers already wanted more than it could build, and the war stopped it delivering to them.

This has never been about demand , rather being able to supply, and it now looks like that restraint is in the rear view mirror.

This morning the parts started moving, in the month it promised, from partner factories that can now build four times last year’s output, with a prime paying it to design the next part.

Fifty a month was $5.3 million last year and KTK can now build 200. At 17c, we think anyone who does the sums this morning is early.